JUSTIN FOX: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Justin Fox, and I’m talking today with Daniel Gross, columnist and economics editor for Yahoo! Finance and author of the new book, Better, Stronger, Faster-The Myth of American Decline, and the Rise of a New Economy. So Dan, welcome to IdeaCast.

DANIEL GROSS: It’s good to be here.

JUSTIN FOX: I take it from reading your book that you don’t think it’s all over for the US economy.

DANIEL GROSS: Not by a long shot. Look at some of the metrics. The stock market has doubled, essentially, in the last three years. We’ve regained our 2007 peak economically. Obviously, we’re behind in jobs. And most of the numbers are moving in the right direction. It’s retail sales, industrial production, exports. A lot of the big data that we look at have been moving in the way we want them to move for the last three years. Now obviously, big outliers like housing. But we had a pretty severe housing bubble, and those take a long time to get over.

JUSTIN FOX: So why are we being deluged by so many predictions of doom and urgent prescriptions for improvement? Like, for example, HBR’s March issue on restoring US competitiveness.

DANIEL GROSS: Well, I think we have a very procyclical economy, and we have a very procyclical market for ideas. When everybody’s going in one direction, everybody piles on. So you get this stuff about how great private equity and real estate is in ’06 and how great technology was in 1999. And the flip side is when you took a fall like the one we took. We had an economy shrinking at a 6% annual rate, which is something we haven’t seen in 80 years. We had the deepest recession we’ve had in 80 years. The contraction in car sales, in housing, no one had witnessed this in their lifetime.

And so when this comes on you very quickly, it’s very easy for people to say, well, how are we gonna get out of this? What are we all going to do for jobs if we’re not going to work in real estate or structured finance? How are we going to pay down these debts? And I think the reality is that we’ve been at these junctures many times in the past. ’30s, ’50s when we were concerned about Sputnik. In the ’70s when we had double-digit inflation and runaway oil costs. And we have proved, as an economy, quite adaptable and resilient. We figure out new ways of doing things.

JUSTIN FOX: But the declinists will be right at some point, won’t they?

DANIEL GROSS: Depends which ones you’re talking about. There are the political declinists, right? Every time a Democrat is elected, certain economists of the right say, oh, we’re never going to have any growth. There’s a Socialist, et cetera. So you had Michael Boskin, the Bush advisor, in the March 6, 2009 op-ed page, “Obama’s Radicalism is Killing the Dow.” That, of course, was the exact bottom.

You have a lot of people, I think, who are very invested in their own policy prescriptions. So Paul Krugman, the Nobel Laureate, had said from the beginning the stimulus was too small. We’re not as insufficiently aggressive on the banks and easing monetary policy. Therefore, since we didn’t follow my prescription, we are doomed to fail. And so people tend to double down on that.

Historians, Niall Ferguson, one of the big declinists out there. He’s British. He looks at things through the lens of the British Empire and how they lost their supremacy and sort of applies that to the US. Very big differences.

JUSTIN FOX: So getting away from this sort of procyclicality you see in the marketplace for ideas, that we all listen to these people more now. People like Krugman weren’t necessarily declinists before decline became popular. What are the strengths, looking at the US economy and how the US business sector works, that make you optimistic?

DANIEL GROSS: Right. So I look in particular in the book a lot at the corporate sector as opposed to consumers, although there is material on consumers. I kind of put it into two buckets. One is internal resources, and there I put things like productivity, efficiency, and finding new resources. And so there are all these oil deposits that we couldn’t get at. We develop new technology, fracking. North Dakota has increased oil production fourfold in the last five years, has unemployment of 3%.

Productivity grew very strong in 2009, 2010. GM four or five years ago was selling Hummers. Now in March they sold 100,000 vehicles that got 30 miles per gallon gasoline or more. The engineers that come on the scene and try to do things better– UPS eliminating left turns from its routes– we have figured out, as an economy, how to do much more with the same amount of resources. The CEO of Estee Lauder said to me, “Flat is the new up.” Well if that’s the situation, then you have to figure out how you can do better on the bottom line if the top line isn’t growing, and American companies are very good at that.

The second is our ability and even compulsion to restructure. We talk about too big to fail in the sense that companies were bailed out, but we had a massive amount of failure. Bankruptcy filing spiked. All sorts of buildings were turned over to new owners. Companies traded hands. But they don’t linger in bankruptcy. I use the example of CIT Group, big small business lender. November ’09, goes into bankruptcy. Five weeks later, $10 billion in debt gone, new management, new funding model, new business model. A healthy functioning public company. When you look at the cash holdings of US companies and profits, how they bounce back, this happened economy-wide.

So that’s the first big piece. And then the second big piece is how we respond to external factors. Namely, this rampant global growth that is making us feel so bad and insecure. There are all sorts of ways in which the economy as a whole and companies have benefited from this.

JUSTIN FOX: So is part of it just that US companies and US economy is pretty good changing course when it has to?

DANIEL GROSS: Absolutely. When you look at Japan, they had this big fall in their markets in ’89. They had a very slow policy response. Our policy response was much quicker. And they had a relatively slow corporate and social response. And the response to their protracted period of lack of growth has been reducing their fertility rate, paying immigrants to go home. And when you look at their trend lines, they think their population is going to fall by half in 2050. It’s a country that has sort of given up.

US, we don’t have the safety net where people can give up. We don’t sort of sit around and say, OK, we’ll sort of muddle through for 5 to 10 years. We’ll figure out how to do something different and how to find new markets. And I think we saw that over and over again.

JUSTIN FOX: Reading your book, there are still things that bother you and worry about how we go about things economically in the US. What are the weaknesses that stand out?

DANIEL GROSS: I think our safety net is a big problem and I–

JUSTIN FOX: But you just said it’s good because it makes us all resilient.

DANIEL GROSS: Well, it makes us very resilient, right. You can’t sit around and get unemployment for three years. You can’t sit around if you’re a company and have your bank not foreclose on you for four or five years. But the aggregate pain that consumers and individuals have gone through as a result of not having adequate insurance, not having adequate income insurance, and in particular not having adequate health insurance, a lot of that is unnecessary. If we had a better health insurance system, then losing your job wouldn’t mean you then could lose your house if you get hit by a car. Or maybe more people would be willing to leave their job that they don’t like and go start a business if they didn’t have to worry about their family having coverage. So I worry about that.

I worry about infrastructure. There is no case I can think of where having poorer roads and tunnels and bridges is good for you economically. And there’s this kind of willful decisions not to invest, so that’s problematic. And certainly worry about politics. But those things are all choices, right. We can choose to have a different policy about infrastructure. We can choose to have a different policy about health insurance. We actually just did.

The declinists are saying, these forces that are arrayed against us out there in the world are so powerful, we’re impotent to deal with them in any way, shape, or form. And I think when you look at our figures on exports, when you look at how US companies engage overseas, when you look at how people around the world, when they get more means they come to the US to spend it. Or they spend money in their home market on things that we’re making. It’s not necessarily a zero-sum game.

JUSTIN FOX: And you just mentioned exports. This has been a bit of a theme for the past year or two, this idea that some manufacturing operations that people have been moving overseas are coming back, on-shoring or in-shoring or whatever. Is that going to create a lot of employment? Is that a big deal, or is it just a little–

DANIEL GROSS: I think that sort of a thing more than a theme. I do have a chapter on on-shoring, in-shoring, re-shoring, off-sourcing, whatever you want to call it, and some of it is real. T-shirts will probably never be made in the United States again. But what I found in talking to people at companies where you need a short turnaround time, where materials are a lot of the product, it may make more sense to make them here.

I talked to Jarden, which is a big consumer goods company, and they make $300 softball bats. To get them out of China requires six to eight weeks, it ties up working capital, ties up inventory. And by the way, many places the softball season is two or three months. So if you’re out, you’re done. Their workers at one of their factories in Minnesota figured out a way to further automate part of the production, so they brought it back home.

JUSTIN FOX: So they had moved it China and then they–

DANIEL GROSS: They’d moved to China many years ago, and now that production is coming back home. Chesapeake Bay Candle. First, we on-shored the business founders, a Chinese couple that came here. A woman came to study journalism and thought better of that as a career path and started making candles. And then they realized they’re buying paraffin and other supplies in Europe and elsewhere, shipping them to China, then shipping them back. Now labor in China’s getting more expensive, shipping is getting more expensive, and their pumpkin spice candles only have a four-week selling period at the Hallmark Store. So they’re making them at home.

BCG, Boston Consulting Group, has done a series of studies called “Made in America, Again.” They believe up to 3 million jobs could be coming back here. But even if we get a quarter of those, that’s still meaningful.

JUSTIN FOX: But what you see is more significant is other ways in which American companies make money overseas or exporting services, and something you call in-porting. That’s with an N, not an M.

DANIEL GROSS: Correct. So we send a lot of goods overseas. Food, commodities. We’re starting to send coal, natural gas, and Boeing airplanes and GE gas turbines. Services, which we are a services economy, things like higher education. We have a record number of people coming from overseas and paying tuition. That’s an export. Tourism, record number of people who come to visit the US. That’s an export. People who come here for health care. So with every passing year there are more and more people who can come here and buy our stuff from us as we sit at home.

We had about 63 million tourists come from overseas. There are 6.6 billion. There’s a lot of money to be made meeting consumers where they are, and we do quite a good job of that as American companies. So it’s Coca-Cola producing Coke in Namibia and selling it through sub-Saharan Africa. It’s GM having a partnership in China where they make the Buick, and they sold more cars in China than they did in the US toward the end of 2011.

It doesn’t create a lot of direct jobs, but when you think about the stakeholders of companies– bondholders, stockholders, but also employees– these industrial companies are only going to be able to pay for the pension and health care commitments they’ve made if they are integrated into local markets overseas and ultimately bringing that revenue home. Whether the taxpayer gets repaid in full from General Motors depends much more on what happens in Shanghai than in San Antonio.

JUSTIN FOX: What about– and you write about this in the book, of being in Davos in 2010 when everyone’s at the World Economic Forum, and everybody’s talking about US decline, and they all want to get into the Google party, and they’re all checking things on their iPhones. And the big moment is whenever they see Mark Zuckerberg or his sister.

DANIEL GROSS: Yeah. She sings, and that’s not such a big moment, when Randi sings.

JUSTIN FOX: I thought she was a good singer. OK.

DANIEL GROSS: That’s American decline right there.

JUSTIN FOX: So it’s clear these companies are global leaders.

DANIEL GROSS: Yes.

JUSTIN FOX: They don’t employ GM numbers of people back home. There’s been a lot of talk in the past few years, well that’s a problem. This isn’t a good model.

DANIEL GROSS: Well those three companies of market cap of $750, $800 billion, up from essentially zero 10 years ago, collectively employ fewer than 100,000 people directly. But I think when you look at business and economic history, the things that have the impact, it’s not always so much about the people they employ directly. It’s about the people that they allow to be employed in different ways. So you look at telegraph. All those people didn’t get paid much to string up the telegraph wires. And then all those companies went bankrupt. The same thing with the people who built the railroads, horrible conditions that no one would want to work under. A lot of those went bankrupt.

But what we got out of that were businesses that could function, and that everybody could integrate that into the way they worked. So we got the Associated Press and modern journalism off the telegraph. We got mail-order retail. Montgomery Ward and Sears were built on cheap freight. We got national brands. All these things, when you create a new infrastructure, that allow other people to innovate and build businesses. That creates a lot of employment for decades and years to come.

JUSTIN FOX: So we got Zynga off Facebook, and that’s–

DANIEL GROSS: You got Zynga off Facebook–

JUSTIN FOX: –that’s our equivalent of the Associated Press?

DANIEL GROSS: –but you also got– yeah, well for iTunes. Let’s take Apple. Think of what it has done for the entertainment industry. For music, for publishing, for people who write apps, for our friends who write books about those companies, for the landlords who own Apple stores, for all of the suppliers. The thing with manufacturing– yeah, I went to spend a day with Jeff Immelt of GE at their factories where they make jet engines in North Carolina and gas turbines. Massive pieces of equipment, very few people on the floor.

In this age of lean manufacturing, he said for every job in this factory, there are eight in the supply chain. People in logistics, people who make the parts, et cetera, people who provide those services, which is one reason why you want manufacturing in this country. So we shouldn’t be looking for these people and saying, how come you aren’t employing a million people the way IBM did 30 years ago, or AT&T? That’s not the way manufacturers operate, and it’s not the way service companies operate. It’s are you creating something that allows other people to do things?

Now Google has created lots of jobs for– there’s a whole class of people called SEO, Search Engine Optimization professionals. And I wouldn’t be surprised to see degrees in that discipline being given out. But it’s also changed the way everybody markets. It’s changed the way advertising works.

So I think we need a lot more jobs in this country. And companies– there are 3.5 million job openings– companies are reluctant to hire, in part because they don’t see demand, in part because the skills aren’t there. Maybe companies should be spending more on training. The economy’s creating jobs. There are lots of openings.

But I don’t think we should be looking to Apple to say, why aren’t you employing? That’s answering the wrong question. The question is, are we creating, in our own country, entities that allow other people to innovate and create their own new economic arrangements?

JUSTIN FOX: As part of the research for this book, you discovered that your family had not one but two AOL accounts. Has canceling those made the US economy stronger?

DANIEL GROSS: Yes because, well just think about efficiency. I’m very big on efficiency, and it’s highly inefficient to pay for something that you can get for free, whether that’s bottled water or, in the case of AOL, email access. And so that has freed up more capital for us to pay down debt or invest for our kids’ college savings or to go to the Olive Garden. Well, maybe not the Olive Garden. But some better restaurant.

JUSTIN FOX: Excellent. Dan, thanks again for talking with us.

DANIEL GROSS: It’s my pleasure.

JUSTIN FOX: That was Daniel Gross. His new book is Better, Stronger, Faster- the Myth of American Decline, and the Rise of a New Economy. You can also read lots more about US competitiveness and related topics at hbr.org.